May 13, 2014
Co-chair Senator Lesil McGuire
Co-chair Representative Bob Herron
Alaska Arctic Policy Commission
RE: Arctic Policy Commission Preliminary Report
Dear Senator McGuire and Representative Herron:
The Resource Development Council for Alaska (RDC) submits the following comments on the January 30, 2014 preliminary report of the Alaska Arctic Policy Commission (AAPC), to the Alaska Legislature. These comments are intended to supplement my verbal testimony to the AAPC delivered at the Anchorage meeting on May 6.
RDC is a statewide, non-profit, membership-funded organization founded in 1975. The RDC membership is comprised of individuals and companies from Alaska’s oil and gas, mining, timber, tourism, and fisheries industries, as well as Alaska Native corporations, local communities, organized labor, and industry support firms. RDC’s purpose is to link these diverse interests together to encourage a strong, diversified private sector in Alaska and expand the state’s economic base through the responsible development of our natural resources.
Alaska Has Successful Experience Developing Arctic Resources to Benefit Alaskans
The State of Alaska, its residents, and industry have close to four decades of successful experience in developing Arctic resources for the benefit of local communities, the region, the state, and the nation. One needs to look no further than the examples of the Red Dog mine in the Northwest Arctic Borough and North Slope oil development, which commenced with the discovery of oil at Prudhoe Bay and the building of the massive 800-mile Trans-Alaska Pipeline System (TAPS).
Red Dog has contributed over $2 billion in positive economic impact on the Northwest Arctic region and Alaska since 1990. In 2013, 639 full-time equivalent family-supporting jobs were supported with 56 percent of those being NANA shareholders. The mine has generated over a $1 billion in payments to NANA and $609 million in 7(i) istributions to Alaska Natives across the state. The Northwest Arctic Borough, which arguably might not even exist had the mine not been developed, received $8.7 million in payments in lieu of taxes in 2013. The borough has financed the construction of five new schools using general obligation bands made possible by revenues from Red Dog.
On the North Slope, over 17 billion barrels of crude oil have been produced and shipped through TAPS destined for west coast domestic markets to meet the energy needs of U.S. consumers. This industry has invested over $50 billion in infrastructure, and the state has amassed a $50 billion Permanent fund that provides annual dividends to Alaskans and a financial legacy recognizing that oil is a nonrenewable resource.
Both Red Dog and the North Slope oil and gas resources have provided tremendous benefits to Alaskans, living both within and outside the Arctic as defined by the AAPC. These developments have occurred with significant attention to protection of the environment and have resulted in multi-generational improvements to lives of Alaskans.
There are no doubt formidable challenges to operating in the Arctic. However, a pre-cautionary approach, which demands that all questions be answered and data gaps be filled before any kind of development moves forward, is unreasonable and would essentially equate to a moratorium on development and commerce while countless studies are conducted. If such an approach was followed in the 1960s and 70s, the vast North Slope oil fields would never have been developed and Alaska’s economy today would be half its size.
Serious consideration and accommodations need to be given to traditional uses and subsistence, research efforts must be encouraged and advanced, and key infrastructure developed. All of this can occur as part of the process of advancing responsible resource development, as was done when Americans embarked on the deliberate, but responsible development of the vast energy resources of the remote and challenging North Slope, more than a generation ago. Research and infrastructure expansion occurred simultaneously with exploration and development activities.
The Arctic Holds Immense and Diverse Opportunities
The resource wealth of Alaska as a whole, and the Arctic in particular indicates that Alaska’s best days are ahead of us. Developments are already underway at Point Thomson and in the eastern edge of the National Petroleum Reserve Alaska (NPRA), and we are entering a promising phase in efforts to monetize North Slope gas. ANWR holds immense potential, and exploration in the Alaska Outer Continental Shelf (OCS), if only allowed by regulators and the courts to move forward, holds great potential for significant new production. Such new production is vital as the TAPS is running at 25 percent of its original design capacity. Such low flow translates into increasing tariffs and significant engineering and operational challenges. Mineral exploration continues in lands adjacent Red Dog with the promise of decades of additional production there.
Mineral exploration at the Ambler mining district, Nome, including offshore, and elsewhere bode well for future mineral developments with benefits comparable to Red Dog.
Without the Development of Alaska’s Arctic Resources, Alaska is Exposed to Most of the Risks with Few of the Rewards
Russian exploration and production giant Rosneft recently approved moving forward with exploration and possible development some 50 miles from the Burger prospect under lease in U.S. waters to Shell. Meanwhile, in spite of dozens of wells previously drilled in the Alaska OCS without incident, approval to move forward on Alaska offshore exploration remains elusive.
Reduction of summer sea ice is increasing vessel traffic in the Arctic. Whether or not U.S. shippers expand their traffic in the Arctic, vessel traffic is on the rise.
An industrial presence in the Alaska Arctic resulting from exploration and development of offshore leases brings with it resources for spill response and search and rescue capacity in the region. However, a worst-case scenario for risks vs. benefits arises if there is no new development in the Alaska Arctic while projects in the Russian Arctic and elsewhere move forward.
There is a Great Deal of Uncertainty with Regard to the Future of the Alaska Arctic
For businesses looking to invest in resource development in the Alaska Arctic there is a great deal of uncertainty. Much of this uncertainty is beyond our control. For example, while climate models are good at predicting trends, they cannot predict with certainty the extent of sea ice in coming years and decades. Global commodity demand and how Alaska development projects can compete with other jurisdictions also creates uncertainty that is largely beyond our control. Schedule delays and cost control are particularly challenging in the remote and harsh Arctic environment.
In contrast, regulatory uncertainty is a human caused condition and within our control to address. Recent experience suggests that regulatory uncertainty in the Alaska Arctic is high and is threatening the ability of Alaska to responsibly develop its resources. According to Bureau of Ocean Energy Management (BOEM), 86 exploration wells have been drilled in the Alaska OCS, including 61 in the Arctic. And yet, six years after Lease Sale 193 with billions of dollars invested, no exploratory drilling (other than well cellar preparation work) has occurred.
The AAPC Should Develop a Clear and Concise Policy that Seeks to Reduce Regulatory Uncertainty in Support of Responsible Resource Development
It would be naive to suggest that the AAPC could single handedly eliminate regulatory uncertainty. However the AAPC is well positioned to influence this regulatory uncertainty by providing a unified Alaska voice that emphasizes the decades of experience and success Alaska has had in responsibly developing its natural resources, and the need for clear consistent and durable policies so development can move forward without undue delay.
This is a critical issue for Alaska. As noted earlier, TAPS throughput is at 25% capacity and reduced flow increases tariffs, creates enormous operational and engineering challenges, and negatively impacts the state’s fiscal and economic future. The Alaska LNG project is under serious evaluation and our mining industry is in its infancy given its potential. None of these projects can move forward without federal authorizations, and if the evolving U.S. policy for the Arctic fails to acknowledge the importance of responsible resource development to the people of the Arctic and Alaska, it may serve as one more barrier to improving the lives of Alaskans.
Recommendations to Achieve a More Clear and Concise Arctic Policy Statement
Without attempting a line-by-line detailed document review, RDC offers the following generalized suggestions in helping achieve a more focused and powerful policy statement based on the principles expressed above.
Cross Check all Proposed Policies with Existing Statewide Alaska Policy
The Alaska Arctic is part of the great State of Alaska with its own constitution, statutes, regulations, and management and governance systems, including the administration with its commissioners, departments, boards and commissions – all with legislative oversight. The temptation to reinvent the wheel for the Arctic should be resisted.
As the AAPC is examining policies related to education, workforce development, community engagement, fish and wildlife management, project permitting, and a host of other issues, these should be vetted in light of existing statewide policies with input and participation from the appropriate administrative departments and perhaps boards and commissions.
To develop policies for the Alaska Arctic without such vetting invites a situation where the Arctic policies are inconsistent with established statewide policies. If the policies are in conflict, which one will trump the other, and what justification is there for policies in the Arctic that conflict with statewide policies established over the 55 years since statehood? Perhaps there are limited situations where such divergence is justified, but if so, these differences should be transparently vetted and compared with input from the appropriate department Commissioners and perhaps boards and commissions. Failure to do this now will simply pass that burden to the Alaska Legislature and administration.
Clearly Define Terms
Terms such as “ecosystem management” and integrated management” should be clearly defined. Failure to do so can result in significant ambiguity with differing interpretations.
Check for Inconsistencies
In certain places the draft document contradicts itself. For example, the document presents two very differing views regarding community and stakeholder engagement. On page 41, the document accurately describes how collaboration between local, state, and industry interests “occurs with frequency and success.” The statement at page 21 suggests a lack of collaboration, a need for a new program. The state’s Office of Project Management and Permitting, provides multiagency coordination for development projects and should be consulted to more accurately reflect current policies with regard to permit coordination.
Example from Page 41 lines 1238-1251
Local government, state, and industry collaboration occurs with frequency and success in Alaska. Arctic communities affected by new development have rightly demanded to be heard during all phases of a project’s development. The manner and scope of this community engagement continues to evolve as the state, communities and industry work to meet new concerns and demands.
Example from page 21 lines 598-602
The state of Alaska should develop a program that achieves transparency and community/local inclusion in decision making through state coordination of multiagency permits, state and federal coordination of permits and plans, and meaningful involvement of regional stakeholders in development activities or plans that affect them.
Alaska has an impressive record of responsibly developing its resources, including the Arctic. This development has been conducted with attention to the impacts on the environment and maximizing the benefits of such development to all Alaskans, both near the projects and statewide. Alaskans from Ketchikan to Borrow benefit from the development of Arctic resources and all have an interest in their responsible development.
In the 55 years since statehood, Alaska has established robust institutions and policies. When crafting Arctic policy, we should be mindful of our existing statewide policies, which have been developed over the decades under our constitutional and statutory framework.
Care should be taken in avoiding conflicting policies that may serve to add to an already uncertain regulatory climate. The AAPC would do well to focus on Alaska’s expertise and success in developing Arctic resources.
The AAPC and support staff are to be commended for the hard work that went into producing this document, and we appreciate the opportunity to provide RDC’s perspective.
Resource Development Council for Alaska, Inc.